Fashion companies impacted by sanctions against Russia

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The war resulted in a rapid response from governments, which imposed sanctions that had a significant impact on the operations of fashion companies navigating the ever-changing rules that carry significant penalties. On March 11, 2022, United States President Joe Biden issued Executive Orders (EOs) imposing additional sanctions against Russia, which we outline below.

The order, EO 14068 restricted:

1. Exports of luxury goods to Russia and Belarus;

2. American imports of alcohol, seafood and Russian diamonds; and

3. The supply of banknotes denominated in US dollars to Russia and the Russian government worldwide.

Luxury exports, Russian imports and US ticket restrictions

EO 14068 contains the following import and export restrictions for luxury goods, seafood, diamonds, and U.S. banknotes.

Luxury exports to Russia and Belarus

The EO prohibits the export, re-export, sale or supply (directly or indirectly) from the United States, or by a US person (wherever located), of “luxury goods” to Russia or Belarus, unless authorized. This prohibition is implemented by a new Final Rule, issued by the Bureau of Industry and Security, which identifies the significant number of goods subject to this restriction, listed by Schedule B number. In addition to banning the export of listed luxury goods to Russia and Belarus, the final rule restricts exports to certain Russian and Belarusian oligarchs and others around the world.

It is important to note that these export restrictions do not only apply to luxury goods of American origin. First, the restrictions apply to all goods listed in the final rule that are subject to export administration

Regulations (EAR). This includes products that are:

1. American origin (wherever they are);

2. Located in the United States (regardless of origin);

3. Produced outside of the United States with more than 25% (by value) controlled US content; and

4. Produced outside of the United States and covered by the special “Foreign Direct Product Rules” for Russia, which were discussed in a previous alert.

Second, even with respect to products that are not subject to EAR, the EO text indicates that U.S. persons, wherever located, are not permitted to export, re-export, sell, or supply luxury goods covered to Russia, Belarus and named parties, although further clarification on this point can be made.

Imports of seafood, alcohol and diamonds

In addition, the EO prohibits the importation into the United States of fish, seafood, seafood preparations, alcoholic beverages, and non-industrial diamonds of Russian origin. To help identify goods subject to this import ban, the Office of Foreign Assets Control (OFAC) has issued guidelines identifying specific codes in the United States Harmonized Tariff System, which can be found here. OFAC has made it clear that non-US persons are not prohibited from importing covered Russian goods into jurisdictions outside the United States under the EO. OFAC has also issued General License 17, which allows the above prohibited import transactions to be phased out if they comply with existing contracts and are concluded by March 25, 2022 at 12:01 a.m. EST. Additionally, U.S. importers are permitted to sell or redirect shipments previously destined for U.S. ports to parties outside of the United States.

US restrictions on banknotes

Finally, the EO prohibits the export, re-export, sale or supply (directly or indirectly) from the United States, or by a US person (wherever located), of dollar-denominated banknotes US (i.e. paper money) to Russia. and the “Government of the Russian Federation” worldwide. The “Government of the Russian Federation” is broadly defined to include any subdivision, agency, instrumentality or party owned, controlled, directed by or acting on behalf of the Russian government. OFAC has issued General License 18 to authorize transactions necessary to transfer U.S. dollar denominated bank notes for personal non-commercial remittances since:

1. The United States or a United States person, wherever located, to a person located in the Russian Federation.

2. A US person who is an individual located in the Russian Federation.

Signaling additional sanctions to come, OE authorizes the US Department of Commerce to impose import restrictions on additional goods and authorizes the US Treasury Department to impose restrictions on new investments in other sectors of the Russian economy.

Conclusion

The company will continue to monitor the impact and changes of the imposition of economic sanctions by the United States against Russia.

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